In Order For Third Parties To Rise, They Have To Have Representation

Third party candidacies for president fail in this country, as do those for representative or senator, because the two parties have a lock on the political process. The lock concentrates power and money in their hands, to the exclusion of the other interests which no longer have representation.

How did the two parties lock it?

Or to put it another way, how did Americans lose representation to the Republicans and Democrats?

The Republicans deliberately ignored the constitution's re-apportionment requirements after the 1920 Census, some say out of fear of competition from representatives of the massive number of then-new immigrants, and eventually prevailed in fixing representation at the arbitrary number of 435 in the US House through legislative fiat. There's absolutely nothing sacred about the number 435. It's just a number we reached when population required that number of congressmen after the 1910 Census.

Normally, the constitution's requirements have to be overcome by amendment, not legislation. But that's what we have, legislative fiat, because both parties found it in their best interests to concentrate power in themselves. The last thing they wanted to do was diffuse power to additional new players as the constitution requires. Since the constitution doesn't specify the upper limit of representation, only the minimum number and minimum proportion (Article 1, Section 1), a problem of first importance in the founding era but never resolved, they got away with it. But they shouldn't have. We're all the poorer for it.

Republicans in particular wear its stain. Today its Tea Party claims to wear the badge of constitutional originalism, but that badge is covering a huge blot of hypocrisy.

If Americans actually had the government the constitution requires but the Republicans of the '20s prevented, we'd have a US House today with 10,000 representatives, not 435.

There would most likely be a number of odd duck political parties represented in that sea of representation, like Greens, Communists, Fascists, Socialists and Constitutionalists. And probably a Gay Party from Saugaytuck, Michigan. But there might also be a rather substantial number of Conservatives and Independents. Considering that "conservative" is today's most identifiable political self-description, you can bet Republican golfers everywhere certainly don't want the competition.

But consider, for example, New York State. It has a Conservative Party, whose most famous public face is perhaps the radio host Sean Hannity. Another famous conservative from New York was the brother of William F. Buckley, Jr. US Senator Bernie Sanders of Vermont is a Socialist, from a state with next to no gun laws! Why not have more of their ilk as the people desire in the US House? Lots more.

Once there, the give and take of politics on a grander scale would most probably change the dynamics of the current politics of not-a-dime's-worth-of-difference between Republicans and Democrats. New actors would arise and give voice to ideas which in the past have had to settle for one congressman's endorsement here, or one there, only to be squelched by the Republicrat party apparatchiks.

More importantly, Republicans and Democrats would have to make alliances and share power in exchange for support. This would increase representation of ideas which today see the light of day in legislation only infrequently. And more importantly still, candidates for national office would have to forge alliances with such representatives too, which means third party candidates for president would actually begin to have some credibility with legislative support, without which a tax reformer like a Herman Cain, Ron Paul or Steve Forbes goes nowhere.

Think about it America!

Stop settling for representation without representation!

"One Representative For Every Thirty Thousand!"

The IRS: Another Reason Not To Use A Credit Card

They're snooping on your transactions.

From an article in Barron's in September (link):

In a new program launched this year, the IRS is cross-checking taxpayers' reported incomes with their credit-card records.

So if you took a luxury world tour in a year you drew a modest income and left a trail on plastic, be prepared to defend your tax return. Through these credit-card checks, the IRS hopes to snag, among others, unscrupulous filers of Schedule C, used by taxpayers reporting profits and losses from businesses.

All in all, Schedule C filers are estimated to report just 57% of their income, leaving some $68 billion in unpaid taxes each year.

The Next Bailout: Think Fed Leverage at 53:1 is Bad? Try the FHA at 417:1.

So says Fortune (link), or else it's curtains for Ginnie Mae:

The second catalyst [for government support of housing to decline] is the FHA, which looks increasingly like it will need a bailout. In its annual report to Congress, released a few weeks ago, the FHA reported estimated economic net worth of $2.6 billion backing $1.078 trillion insurance in force, for a capital ratio of just 0.24% (or 417x leverage). One year ago, the capital ratio was 0.50%, and in 2007 it was 6.4%.  The FHA's annual report claims it's adequately capitalized, but this conclusion relies on home prices not falling at all from here. ...

The government will have to pony up to recapitalize the FHA. FHA mortgages are fed into Ginnie Mae MBS, and Ginnie Mae MBS are explicitly backed by the full faith and credit of the United States government. So if the FHA runs out of funds, the government will have little choice but to step up. To do otherwise would be a default – not out of the question these days, but not very likely either.

FHA and VA loans fill void left by private lending

Dr. Housing Bubble weighs in with the big picture (link):

The trend for lower home prices has been baked in for nearly a year now. Last summer we had a mini burst of buyers thanks to artificial tax credits and low interest rates. I still view the current market as being designed for the nothing down leverage happy mentality that is present in our society. You have a large number of buyers purchasing homes with 3.5 percent down FHA mortgages and the default rates are soaring in this category. ...



Over half a decade ago I knew the bigger issue would be the cognitive dissonance that would linger from a post-bubble world. Many now realize that what occurred in the housing market was a once in a lifetime spending binge induced by debt. Yet some still think those days are only around the corner. The global debt crisis will not allow that. This is why most of the mortgage market is now dominated by the government. How many foreign governments or investors are going to trust Goldman Sachs or Morgan Stanley when they drop by their door steps with new mortgage backed securities? I think some have learned their lessons well and the data reflects this.


The housing market was bound to have a day of reckoning and it looks like it is slowly unraveling. It was simply impossible to have a shadow inventory growing with banks just ignoring the reality. We are now going into year five of the housing bubble bursting. You have millions of those in foreclosure who have not made a payment in one to even two years.


Ultimately the burden falls largely on the middle class. The Federal Reserve has a primary mission to protect banks. That is their bottom line. They are not looking out for the best interest of homeowners or working Americans. For the cost of the bailouts and shadow loans, they could have paid off close to every mortgage in the country. Yet even principal reductions were never on the radar because to do that, it would be to admit a financially broken system. Instead they opted to give out $7.7 trillion in backdoor loans to banks and forced the public to deal with “free market” solutions. An interesting situation no doubt but the problems we are now facing are based on this two-tiered system.



Confounded Interest points out (link) just how high the FHA default rates are:

As of October 2011 17.02% of FHA loans were at some stage of delinquency. The serious delinquency rate is 9.05%.


Clearly another government sponsored enterprise is repeating the mistakes of the past as we speak, having destroyed its capital base with non-performing loans swelling its balance sheet. FHA obviously should require down payments which are much higher than 3.5 percent in order to strengthen its bottom line, but it's probably too late to avoid bailing it out for the mistakes it has already made.

Consumers Increase Spending in 2011 From Savings and Social Security Tax Holiday

Net real retail spending looks set to come in up 2.9 percent in 2011 over 2010.

Per the data here from the Census.

Average monthly retail and food expenditures in 2010 came to $363 billion per month, or $4.4 trillion overall.

Through October 2011 average monthly retail and food expenditures are running at $389 billion per month, or $4.7 trillion annualized.

That's a 6.8 percent increase so far, or about $26 billion more per month.

Less inflation running at 3.9 percent, the net real increase appears to be 2.9 percent.

$billions monthly

Unfortunately, about $14 billion of the $26 billion nominal monthly increase could be attributed to a reprieve on Social Security taxation of 2 percentage points on employee compensation running at an annualized rate of $8.3 trillion as of October. That extra money in paychecks is simply being spent.

Where did the remaining $12 billion per month come from?

From savings.

The savings rate has plummeted since January, from a rate of 4.9 percent to 3.5 percent. In January we were saving nearly $47 billion per month, but now only $33 billion, a difference of $14 billion per month.

Add the pernicious work of inflation on top of all that, and the rosy scenario of increased consumer spending doesn't look so good after all, especially since incomes are stagnant to falling. Hours worked year over year are flat, and real average hourly earnings overall are down 1.6 percent, according to the BLS here.

When the Social Security tax holiday expires on December 31, there will be less money available to spend, automatically. Robbing from Social Security for such temporary gains is a gimmick, but don't underestimate the politicians' and the voters' eagerness to repeat it under these grim circumstances. They'll take the money, even if it means saving less, because they need it.

Interest on Federal Debt Topped $454 Billion in Fiscal 2011

So says the US Department of the Treasury here.

With fiscal 2011 receipts running at $2.3 trillion according to Treasury here, interest payments now represent 20 percent of federal revenues. Since we're spending $1.5 trillion more than we presently took in, you could say that almost a third of this deficit spending is interest payments.

Total US government debt is running at approximately $15 trillion, so an interest payment of $450 billion per fiscal year implies an interest rate of about 3 percent.

Double that interest rate to 6 percent and interest payments balloon to $900 billion and 40 percent of current revenues.

Mark Steyn recently had some unhappy, pornographic thoughts about that, here:

R.I.P.

[W]ere interest rates to return to their 1990-2010 average (5.7%), debt service alone would consume about 40% of federal revenues by mid-decade. That's not paying down the debt, but just staying current on the interest payments.

And yet, when it comes to spending and stimulus and entitlements and agencies and regulations and bureaucrats, "more more more/how do you like it?" remains the way to bet. Will a Republican president make a difference to this grim trajectory? I would doubt it. Unless the public conversation shifts significantly, neither President Romney nor President Insert-Name-Of-This-Week's-UnRomney-Here will have a mandate for the measures necessary to save the republic.








(source)

Remembering the $Trillions Withdrawn from the Housing ATM

Boy, don't we wish we had those back today.

Consider The Washington Post, May 30, 2007, here:

According to Fed data, homeowners' equity -- the value of their homes minus mortgage debt -- grew to nearly $11 trillion at the end of [2006], or double the value at the end of 1998. ...

[T]he housing boom ... fueled spending directly by turning homes into cash machines. As prices rose and interest rates fell, Americans extracted trillions of dollars in extra cash through home sales, mortgage refinancings and home equity loans.

Homeowners gained an average of nearly $1 trillion a year in extra spending money from 2001 through 2005 -- more than triple the rate in the previous decade -- according to a study by former Federal Reserve chairman Alan Greenspan and Fed economist James E. Kennedy. That's the "free cash," as the authors call it, left over after closing costs and other fees deducted from equity withdrawals.

Most of the money extracted during those boom years, nearly two-thirds, came from home sales, the authors found. Another 21 percent came from home equity lines of credit, while 15 percent came from mortgage refinancings.

About a third of the free cash gained during this period was used to buy other homes, they calculated. About 29 percent was used to acquire stocks and other assets. About 12 percent went to home improvements. And nearly a fourth, 23 percent, went to consumer spending, including paying credit card bills and reducing other non-mortgage debts.

Translated into dollars, a trillion dollars a year for five years over 2001 through 2005 is $5 trillion nominal in extra spending money, nearly a quarter of which, $1.15 trillion, was simply blown. Some people literally ate it, drank it, and danced the night away with it. If the study is correct, the extra spending money in the 1990s from our homes came to an additional $3 trillion. I can only guess about the 1980s, but even if only $1.5 trillion, this means Americans have easily extracted almost $10 trillion from home equity over the course of 30 years.

A review of the latest Federal Reserve data here shows that net worth of owners' equity in household real estate has fallen $7 trillion just since 2005. Falling from $13.2 trillion in 2005 to $6.2 trillion as of the end of Q2 2011, this is a decline of 53 percent. This metric pretty perfectly mirrors the bubble in housing which began in earnest in 1997, coincident with the change in the tax law permitting capital gains tax free every two years up to $500K with conditions. Except that the measure hasn't yet quite reached what it was in 1997. We're still about a trillion dollars shy of that mark in nominal terms.

Total real estate valuation over the same period has fallen less, from $22.1 trillion to $16.2 trillion, or 27 percent. But equity as a percentage of value has fallen more than valuation, 35 percent.

A longer term chart of the latter phenomenon found here shows that since 1980 home equity as a percentage of value has been under constant pressure, most probably from what is called portfolio shifting, debt expenditures from car loans and credit cards, college tuition, stock investing and second, third and fourth home investing piling into HELOCs, 2nds, refis and the like. The interest on all that stuff before 1986 was tax deductible in its own right, but after Reagan's famous tax reform, deductibility was restricted to interest from home equity loans and lines of credit only. That arrangement was formalized at levels up to $100K in 1987, precisely after which as shown in the chart the decline in owners' equity commenced with new vigor. So people who could financed everything they could through HELOCs, cash out refinancing and the like in order to continue to be able to deduct the interest expense on their tax returns.

As a result of this and the collapse in the real estate bubble, today we are faced with the dramatic all time low of 38 percent in owners' equity as a percentage of value, a decline of nearly 47 percent since 1982.

Just think how much better off we would be today if we hadn't tapped all that equity over those three decades, especially in inflation-adjusted terms. We truly have been the squanderers.

So present household real estate valuation at $16.2 trillion represents a level last seen in 2003 in nominal terms. But adjusted for inflation, that's $13.7 trillion, which was actually the total nominal value of household real estate last seen in 2001. To get to the pre-bubble valuations of 1996, today's number would have to fall yet further to $11.8 trillion.

In other words, to erase completely the effects of the bubble on valuations, adjusted for inflation, would imply that total real estate valuation would need to fall another 27 percent from here, or $4.4 trillion.

The American dream nightmare.

Today's Economy is Already Being Stimulated by a Bipartisan Attack on Federal Revenue

I'm talking about the Social Security Tax Holiday for 2011, which continues to add $112 billion this year to workers' paychecks as we speak.

If it's doing any good for the economy, remember it's going away in about six weeks and will all be reversed next year. It's called pulling prosperity forward. Which leaves a void in . . . the future, to be filled by . . . what, exactly?

Except Obama doesn't want there to be a question about the immediate future, which is why his famous, urgently-needed "today" jobs bill from last August but which still isn't going anywhere includes an extension and expansion of the holiday, and will cost the Social Security program $240 billion next year on top of this year's cost.

Obviously necessary, if you're running for reelection.

But it's just more gimmickry from our professional grifter class. Refresh your memory about it here, but think about it this way: These same crackpots keep wanting to take away your tax deductions PERMANENTLY while at the same time offering you TEMPORARY crumbs from our masters' table.

$112 billion this year, $240 billion next year, but in the disguise of tax reform they want to saddle you forever with paying higher income taxes to the tune of $88 billion each and every year because you can no longer deduct your mortgage interest. Tax deductions have a permanency tax rates do not. The lower overall rates bequeathed to us by the 1986 tax reform which today's Republicans so proudly do hail were gone like a fart in the windstorm by 1992 when Bill Clinton took over.

A bowl of pottage for your birthright.

Michael Barone Joins The Liberal Chorus Attacking Progressive Taxation

You heard me right, the liberal chorus attacking the progressive tax code, in this case the progressive tax code's deductibility provisions which are . . . well, progressive.

Barone and other liberal Republicans like Pat Toomey, Gang of Sixers and Gang of Twelvers do it on the grounds that the deductions for mortgage interest and state and local taxes help the $100K+ set more.

Nevermind "the rich" already pay the vast majority of the taxes. They want to make them pay even more because . . . well, they don't really need the money, and government does! And maybe liberals will like us more.

Talk about ceding the moral high ground to the left. Who would want to go to all the trouble of becoming rich just so that they can have the privilege of paying even more of the taxes?

Nevermind that the poor own one of the biggest "tax loss expenditures" in the form of transfer payments for the Earned Income Credit and the Child Tax Credit: $109 billion. Compare that to the mortgage interest deduction's tax loss cost to the Treasury : $88 billion.

Here is Barone:

[T]he big money you can get from eliminating tax preferences comes from three provisions that are widely popular.

The three are the charitable deduction, the home mortgage interest deduction, and the state and local tax deduction. ...


[T]he vast bulk of the "tax expenditures" -- the money the government doesn't receive because taxpayers deduct mortgage interest payments from total income -- goes to high earners . . ..


Well why shouldn't they under a progressive tax system? 


There's really no difference between Michael Barone and Republican advocates for "tax reform" and Democrats like Peter Orszag, for example, who makes an argument for similarly flattening deductibility for the rich by limiting their traditional deductions enjoyed by everyone across the income spectrum. What this amounts to is an admission that the progressive deductibility which we have now does NOT go hand in hand with the tax code's progressive taxation.

The current arrangement may not seem fair to flat taxers, but it is internally consistent. If you pay progressively more in taxes, your deductions should justly be progressively worth more to you. And so they are. If you pay progressively less in taxes, your deductions should justly be worth less to you, progressively. And so they are.

Proposals to limit deductions for one class of taxpayers amount to destroying the internal coherence of the progressive tax code itself. It is nothing less than an attack on the idea of progressivity and its fair unfairness, all in the name of extracting even more from the pockets of successful people.

Sheer nincompoopery. 

Tax Reform Should Come Off The Table: Spending Cuts Only Are Acceptable

To Sen. Reid and Pres. Obama, tax reform means tax increases.

So fuhgeddabowdit. 

Automatic cuts to defense and social spending it should be.

'The Means of Government Oppression'

From Lawrence Hunter, here:

standing armies in peacetime;

the regulatory instruments of torture [politicians, bureaucrats and judges] use to command and control individuals’ behavior;

access to individuals’ pocketbooks and bank accounts by . . . the power of direct taxation.

The Big Fat Idiot Establishment Republicans Like Rush Limbaugh Won't Replace Your Tax Deductions

When deductibility of interest expenses in a wide variety of vehicles was eliminated for income tax purposes in the tax reform act of 1986 under Ronald Reagan, those deductions ended up being replaced by deductibility of interest if incurred through HELOCs (home equity lines of credit) shortly thereafter.

Deductibility of interest expense on consumer loans, car loans and credit cards went the way of the dodo, only to be shifted to HELOCs. It was a fateful decision which made overleveraging of housing as routine as taking out the trash. But that's an entirely different kettle of fish.

In 1987 Congress quickly acted to expand deductibility of HELOC interest expense because the 1986 act cut people off at the knees and they didn't like it one bit. It was a consumer society accustomed to deducting credit card interest, and it didn't like the new rules at all. The 1986 act quickly proved to be a futile attempt to curb consumer spending and encourage savings. The political fallout was so great that the interest expense from HELOC borrowing was dramatically expanded to fill the gap the next year.

I quote from The New York Times, here, February 2, 1988:

BORROWINGS AGAINST EQUITY: In addition, homeowners will be allowed to claim mortgage deductions for up to $100,000 in borrowings against the equity in their house - no matter what the loan is used for. 

A veritable chorus of voices today on the right and left, including Rush Limbaugh who is simply phoning it in these days, is appealing to this period to urge the country to get behind a Republican Super Committee plan to raise revenues by closing loopholes like the mortgage interest deduction for wealthier taxpayers, "just like we did in 1986."

Oh yeah? What's in it for us?

Once the camel gets its nose under this tent in the name of making the rich pay more, you can bet the precedent will be used down the road to deprive the middle class also of the deductibility of interest on a home mortgage.

And you'll get nothing to replace it except an empty promise to lower your overall tax rate, which the next Congress will rescind in a heartbeat. Few of you remember that the top tax bracket from 1988 to 1992 was 28 percent. Bill Clinton and the Democrats made short work of that.

Real conservatism is about using federal tax policy to promote property ownership, ordered existence and family formation. The current crop of establishment Republicans, including Rush Limbaugh, is a bunch of phonies. Rush can't even remember 1986:

The Republicans are offering a plan which would take away itemized deductions for anybody making over $174,400 a year. In exchange for that they would lower the top tax rate from the current 35 down to 28%. We've done this before. We did this in 1986. This was part of Reagan tax reform except the top marginal rate then was 50. Wait a minute. No. All itemized deductions for people who make the... Stick with me on this. All itemized deductions for everybody who makes $174,000 or more -- home mortgage interest, charities, all of that, gone in exchange for a lowered rate from 38, 28%. Now, we've done this before.  Back in 1986, top rate was 50, took it down to 28, there was a bubble of 31 percent for few people, and we got rid of some deductions.

There will be no future America without the traditional family.

Too bad Rush Limbaugh has never had one.

As ObamaCare Goes To The Supremes, Will It Stand Or Fall On Tax Grounds?

The individual mandate which is at the heart of ObamaCare insists that everyone buy health insurance in every state.

Once the mandate was challenged by opponents after passage, however, the Obama regime quickly began defending its penalties as a tax, which it was loathe to do in selling the law to the public for political reasons. While the law contains tax provisions, the penalty associated with not securing coverage is not a tax.

The tax argument raises important constitutional questions of fairness and substance. If the penalties really are taxes, aren't also the premiums, since the penalties take their place? And will everyone in every state pay the same premium tax for coverage? If some pay only the penalty, which is low compared to the premium, doesn't the law enjoin inequity?

Another question is whether anyone can avoid the tax. This in turn touches on the distinction between direct and indirect taxation. If the tax can be avoided, it is an example of indirect taxation which is permissible, but which must still be uniform. If it cannot be avoided, then the tax must be apportioned according to population so that everyone, rich and poor alike, everywhere pays the same tax, which would be easy for the rich, but not for the poor. But presumably under ObamaCare plans will vary from state to state as they do now, with premiums which vary according to coverage, so Americans will be forced to pay, and pay unequally.

Consider the income tax. If you take no ordinary income in the form of salary and wages, you are not liable to pay it. Wealthy individuals regularly take income in the form of capital gains, which is taxed under different rules with lower rates than ordinary income. The same avoidance obtains when taking income from municipal bonds and other tax-free bond investments. In important respects the federal income tax is thus indirect, and therefore does not need to be apportioned according to population.

Similarly with excise taxes. If you choose to drink wine over spirits the tax you pay per bottle will be substantially less for wine. You pay the tax on the wine, but you have avoided the tax on the bourbon. But if you drink neither at all, you avoid the excise taxation altogether. Hence the popularity of stills.

Some of these points get an interesting airing here as they apply to Obamacare:

The legal wrangling over whether a particular tax is direct or indirect, as Willis and Chung discuss, has been complicated and persistent for more than two centuries. In 1794, for example, Congress passed a tax on carriages, which opponents considered a direct tax and thus invalid because it was not apportioned by population. The Supreme Court found it was an indirect tax on the use of carriages, valid so long as it was uniform.

Obamacare imposes an annual penalty of $95 per adult, or 1 percent of income, whichever is greater, in 2014. The annual penalties are the greater of $325 or two percent of income in 2015 and the greater of $695 or 2.5 percent of income in 2016 and subsequent years.

Willis and Chung argue these are not indirect, but instead direct taxes, unconstitutional because they are not apportioned by population. It could also be argued, though, this provision is a mixed bag. The fixed annual penalty portion, for example, could be viewed as indirect and uniform and thus constitutional, while the income percentage amounts could be deemed direct but not apportioned and thus unconstitutional.

The tax could therefore be unconstitutional for those who pay income percentages but constitutional for those who pay a fixed penalty. This may be a ridiculous and unprecedented view, but it does illustrate the complexity of this issue—leaving us with a tangled legal web indeed.

The ruling of the Supreme Court is expected next June after oral arguments in March 2012.

Fireworks are expected.

Adam Davidson of NPR Wants to Increase Taxes on It, But What Really is The Middle Class?

In The New York Times, here, where he expansively defines the middle class as everyone making between $30K and $200K:

To solve our debt problems, we have to go to where the money is -- the middle class. People who earn between $30,000 and $200,000 a year make a total of around $5 trillion and pay less than 10 percent of that in taxes . . .. [M]ost economists acknowledge, and most politicians privately concede, that the middle class will have to give up some benefits . . . or it will have to pay more in taxes. Actually, it will probably have to do both.

It's a frequently repeated myth that the middle class includes many of the people in the top income quintile, that is, those making in excess of $100,000 per year, but it just isn't true no matter how often it gets repeated.

Richer men and women don't want to be called rich, of course, so they make believe they're just like the rest of us and call themselves middle class when they're anything but.

That this myth is getting repeated so often these days, however, and not just in liberal quarters like The New York Times but also in places like The Wall Street Journal, should make your antennae stand up.

I say this is all part of a softening-up operation to get the rubes ready for a big fat tax increase.

That uncomfortable feeling you get reading the article above might as well be because the author is using one of these to blow smoke up your rear end:

In all seriousness, though, the fact of the matter is that in 2010 there were 99.5 million wage earners making less than $40,000 a year, according to the latest information from Social Security, here. That's fully two thirds of all the wage earners in the country, and a long way from the earners in the top quintile.

The next tranche up from there, namely wage earners making between $40,000 and less than $80,000 a year, is really small by comparison, just under 35 million wage earners.

And fewer than 10 million wage earners inhabited the next level up in 2010, those who made between $80,000 and $120,000.

The $120,000 to $160,000 set is hardly a crowd by comparison, just over 3 million wage earners strong.

Between $160,000 and $200,000 there were 1.25 million people.

And beyond that: 1.75 million wage earners, making to infinity and beyond.

Asserting that middle class extends all the way up to $200,000 when nearly 90 percent make less than $80,000 a year is quite simply ridiculous. It's obvious that the middle is below $40,000 when the average wage of all 150 million workers in 2010 was $39,959. Worker number 75 million from the bottom made just $26,363.

A more meaningful metric for middle class is what kind of housing income can buy at that great dividing line of $40,000.

For example, when I bought my first real traditional home way back in the nineties, the seller's attorney congratulated us at closing by saying, "Welcome to the middle class." I might have said we'd never left it, seeing that we had been owners of other kinds of dwellings twice before, but the attitude represented the cultural consensus that single family home ownership with a lawn to cut defines the socio-economic middle. Being able to afford such a place has been synonymous with achieving the American dream since WWII, after a long period of economic upheaval which quite literally unsettled millions.

So who can afford what when it comes to housing today is an important measure for judging whether the American dream continues intact.

Consider that the median price of an existing single family home in the US stands at $165,400 in September 2011, according to the National Association of Realtors, here. The lowest median price is in the Midwest at $137,400, and the highest is in the Northeast at $229,400.

Assuming one can come up with the 20 percent down payment of $33,080, which is a tall order for someone making $40,000 a year in today's economy, $132,320 financed at 4 percent over 30 years means a principal and interest payment of $631 a month. Add $300 a month for taxes and insurance and the $931 monthly payment means, at a maximum percentage of income of 28 percent, income must be $3,325 a month, or $39,900 a year.

Another way to put this is that the maximum price of a home which can be afforded by a $40,000 income is the current median price of $165,400. Anything beyond that is out of reach.

So, for how many people is that out of reach?

Based on the numbers from Social Security above, for easily 66 percent of the workforce, or nearly 100 million workers who individually couldn't buy more home than the median priced home without more income. But of course many households have two earners who combine their incomes to do just that.

Nevertheless tax data from 2009 more than support the conclusion that a clear majority of Americans cannot afford housing at the median price level.

The latest information indicates that half of the country, nearly 69 million tax returns in 2009, had adjusted gross incomes of less than $32,396.

The next tranche up from there, consisting of 34.5 million more tax returns, takes us up to 75 percent of the whole country, and adjusted gross income of less than $66,193.

(And contrary to Mr. Davidson, the combined adjusted gross income of the first 75 percent of taxpayers is only $2.7 trillion. Of the first 50 percent, barely $1.1 trillion. The money is most definitely not in the middle. It's in the top 25 percent, with $5.2 trillion in AGI last year).

In other words, somewhere between 50 and 75 percent of the country would have to settle for housing which falls well below today's median price level if they had to buy today, despite the 16 percent decline in the median price from $198,100 reached in 2008.

Many who already own a home under these circumstances are desperately trying to keep theirs because they know their chances of being able to buy another one are not very good. Incomes are flat to declining and unemployment and underemployment are widespread. With home prices depressed, many who purchased during the bubble from 1998 to 2007 wouldn't walk away with enough from a sale for a down payment on another home. Some estimates put that number of underwater mortgage holders at 25 million, fully half of Americans with mortgages.

They dare not sell, because to do so is to leave the middle class.

Indeed, according to the Census Bureau here home ownership rates have fallen almost 4 percent from peak, back to 1998 levels.

And the liberals' solution to this middle class implosion is to raise their taxes.

It's not just crazy. It's mean, because increasing taxes on the real middle class will turn it into the working class, which, I gather, is the whole point of socialism.

The Easiest Mortgage Loan Bailout Program Would Let Taxpayers Do It Themselves

According to the Federal Reserve's latest Statistical Release in September, here, the current value of all residential mortgages outstanding is $9.935 trillion.

That's down 5.8 percent from the 2007 peak of $10.542 trillion.

It is estimated that half of all residential mortgages are effectively underwater, meaning homeowners, if they could sell under current conditions, would not make enough from the sale to have 10 percent down for the purchase of a new home. This situation traps people in their homes, keeping them from moving to  take employment or retirement elsewhere.

The easiest solution to this problem is to allow holders of 401K, IRA and similar retirement accounts to withdraw funds without penalty, and perhaps even without taxation, if expressly used for the purchase of a new home, or for retirement of an outstanding mortgage or home equity loan. If not a complete tax forgiveness, government could settle for a flat tax at a low rate on such withdrawals in order to stimulate activity and help solve problems associated with indebtedness.

Holders of IRAs already know only too well that there are few exceptions to withdrawals without penalty. Perhaps the most useful of these few exceptions at present has been withdrawals permitted in certain circumstances for health insurance premium expenditures. Some people who have lost their jobs and their insurance have found this provision particularly helpful during this most severe period of unemployment since the 1930s. It has enabled them to purchase their own health insurance for themselves and their families with the funds.

The provisions permitting such withdrawals should be expanded to permit use of these funds to buy homes elsewhere, or pay off existing mortgages, which would do more than anything government has tried to do to date to stimulate velocity in the housing market.

People have saved plenty of dough to do it, too: $18 trillion.

Here's recent testimony about this from the Investment Company Institute:

Americans currently have more than $18 trillion saved for retirement, with more than half of that amount in defined contribution (DC) plans and individual retirement accounts (IRAs). About half of DC plan and IRA assets are invested in mutual funds, which makes the mutual fund community especially attuned to the needs of retirement savers.

Of course, not all of this money may presently be in the direct control of the individual taxpayers themselves to do with what they please, but a significant portion in IRAs and defined contribution plans, over $9 trillion, might very well be, according to ICI's latest data:

The risk to the retirements of people going forward if they are allowed to liquidate some of these monies is very real, but so is the prospect of a stagnant market of underwater mortgages devolving into bankruptcy, or even precipitating severe economic depression.

People should at least be given the choice under the current circumstances, perhaps with a sunset provision expiring in five years in order to spread out the effect.

A tip of the hat to John Crudele of The New York Post, who continues to argue for this solution in his columns.

Fortune Editor Geoff Colvin Thinks Flat Tax is Good Idea Which Need Not Be Partisan

As reported here:

[D]on't call it a flat tax. Call it a top-to-bottom overhaul that will put people to work, close loopholes that serve only certain corporations and the rich, make America more competitive globally, and improve life for people who work hard and save money. A flat tax, done right, can achieve all those benefits and more. Nor is it just theory. Several Eastern European countries have successfully used flat-tax systems for years.

Emphasize that it's a big change, bigger than most people first realize. Asking whether your taxes would go up or down under a flat tax is too small a question. Such a system would change your income, your taxes, interest rates, the value of assets, and prices of things you buy. All those changes combined would determine whether you'd be better or worse off. If it's done right, most people would be better off.

A flat tax can be a good idea. Let's hope it can escape the campaign war zone and get the serious attention it deserves.

Red State's Erick Erickson Says Romney Will Be The Republican Nominee

Because Perry blew it on immigration and Newt and Cain blew it with women.

There are many money lines in the post, here.

Oh, and Romney will lose to Obama, and conservatism dies.

And that means now we should rethink . . . John Huntsman (!).

Doesn't that mean conservatism is already dead?

The real conservative in the race is Cain, who likes $400 wine and a national sales tax. Therefore the argument is social, that is, with the women, who gave us their opposites: Prohibition and The Income Tax. Real conservatives like Phyliss Schlafly support Cain's ideas to unleash American business.

What we need is more women like Phyliss Schlafly, and fewer like Ann Coulter.  

Peter Morici Says Herman Cain's 999 Plan 'Makes Great Economic Sense'

Here, but doesn't explain why in the same breath he criticizes Cain for being short on explanations (!):

Mr. Cain’s 9-9-9 tax proposal makes great economic sense but when pressed, he cannot explain why it does or how it would work. For example, when asked about how the nine percent sales tax would treat imports, he doesn’t know—this despite the fact that European countries have extensive experience with this issue, economist and lawyers have studied those issues ad nauseum, and the treaties the United States and EU have signed permit applying sales taxes to imports and refunding the same on exports to maintain neutrality in competition between foreign and domestic products.

I think Herman is being coy about treatment of imports because he intends to apply tariffs wherever necessary to level the playing field to make American exports more competitive.

Herman can't be entirely candid about that sort of thing at this stage because Republicans have been hooked on free trade since at least the 1960s. In the general campaign against Obama, however, Cain could conceivably make a bid for the Democrat union vote with such a tariff threat as part of an overall strategy to form a broader coalition not unlike Reagan put together in the 1980s.

The Broadest Tax Base Which Can Possibly Be Imagined Implies a Tax Rate of 6.2%

Herman Cain's 999 Plan is focusing attention on the perennially perplexing problem of taxation for the American electorate in 2012. His plan has brought questions about broadening the tax base for tax reform front and center, including: What tax base is large enough to generate adequate federal revenues? and: What rate of taxation is fair?

Herman's big idea is to scrap the entire tax code and start over with three new bases taxed at the same low rate for a temporary period of time, eventually transitioning the country permanently to just one of these bases, taxed at a much higher single rate.

His scheme is quite conventional in that it looks to the existing traditional bases of taxation with which we have been familiar for decades: corporations and individuals.

What is new, however, is the national sales tax, the base for which was fairly sizable in 2008 at $10.1 trillion in personal consumption expenditures [PCE], and running at almost $10.8 trillion annualized through August 2011.

Currently the overwhelming burden of taxation falls on the individual filer whose personal income is taxed in order to provide Social Insurance and Federal revenues, which in 2011 are currently running at an annualized rate of $2.3 trillion, as shown here by the Bureau of Economic Analysis. Corporations, excises and tariffs provide puny sums by comparison: less than $500 billion in 2008.

This means that in 2011, Herman Cain's ultimate idea of taxing consumption to replace current revenues of approximately $3 trillion would imply a national sales tax rate of 28 percent on $10.8 trillion in goods and services expenditures this year. That's a pretty hefty rate by comparison with present conditions.

Currently the personal income base on which we exact that $2.3 trillion in Social Insurance and Federal taxes is just over $13 trillion. This implies an overall tax rate of 18 percent. If personal income in that aggregate amount had to do all the pulling to generate the full $3 trillion in revenues, personal income would have to be taxed at a rate of 23 percent to do the same thing as the consumption tax. Not as high, but still much higher than the 9 percent Herman Cain has called for currently, if only temporarily, in deference to the God of the Bible who asked for just 10 percent from his chosen people.

By way of comparison, if there were some way to easily tax GDP, currently running at $15 trillion, the effective tax rate would have to be 20 percent.

So is there a tax base which is broader still, from which we can derive the necessary sums and get that rate even lower?

Given that people by definition receive income in consequence of the conduct of business of one kind or another (aside from gambling, prostitution and bank robbery), it seems reasonable to look at the size of the various tax bases available strictly from businesses, without whom none of the other tax bases would exist in the first place. If we really mean it when we say we want to tax income only once, we need to go to its source, and for nearly everyone in our society, that source is business.

Corporations in 2008 had total receipts of $28.5 trillion, 2.8 times the size of Herman Cain's PCE tax base. It would have taken a gross receipts tax of merely 10.5 percent on this sum to have generated $3 trillion in tax revenue in tax year 2008, a year when revenues were actually lower at $2.5 trillion. That implies a gross receipts tax of only 8.8 percent on corporations in 2008.

In such a world, there would be no more income taxes on individuals, no Social Security or Medicare taxes either, and no capital gains taxes nor taxes on investment income or savings of any kind, and government would not go wanting. Nor would business be constrained by other taxes and fees imposed on it if we were to throw out the current code and replace it with this simple levy.

But the base could be made broader still in order to lower the effective rate even more.

Add in partnerships, which had $5.9 trillion in total receipts in 2008. And S corporations, which had $6.1 trillion in total receipts in 2008. Both of these added to corporation total receipts yields a gargantuan tax base for 2008 of $40.5 trillion in gross receipts.

All of that could have been taxed at a mere 6.2 percent to meet the federal revenue of $2.5 trillion collected in 2008.

No more talk of a flat income tax, nor of a progressive income tax, nor of a consumption tax. No more compliance costs of $450 billion because of the current code. No more lost time equivalent to 3 million full time jobs.  Just one, low, simple, rate on business. That's it.

In addition to God, John Tamny might go for it, too:

"The answer as always is for the government to simply get out of the way. If it must tax corporations, its taxation should be blind in the way that justice is. A flat gross receipts tax would make all corporations equal before the IRS. That would ensure the most economic allocation of capital on the way to rational, market-driven growth."

Herman Cain's Consumption Tax Is Firmly Rooted In The Framers' Original Intent

Lawrence Hunter for Forbes provides an excellent primer on the Framers' argument for indirect taxation, which is to say taxation on consumption, showing how such taxation was chosen by them on purpose because it is by nature self-limiting, which is a necessary predicate to limited national government:

Hamilton’s exposition in Federalist #22 illustrates the sophistication of the theory of political economy that informed the original constitutional design, which gave rise to a constitutional pincer holding the national government firmly in check.  History has borne out the Framers’ expectations that taxes on consumption are to a large degree self-limiting, while direct taxes know far fewer limits.  In the case of the original Federal design, the self-limiting tendency of indirect taxes on consumption augmented the other arm of the constitutional pincer—limiting the national government solely to the exercise of delegated powers—to make unnecessary other specific constitutional limitations on the national government’s taxing and spending authority, i.e., explicit taxing, spending and borrowing limitations.

The whole thing, here, is must reading.

Progressive Taxation: What Would Jesus Take?

The short answer is: all of it.

The long answer is more complicated.

Rush Limbaugh was a little ticked off a while back because liberals were asserting that Jesus would raise taxes, especially on the rich, which is, of course, a complete caricature of Jesus' teaching. Jesus wouldn't just raise taxes. He'd have made them completely irrelevant. For everyone.

The fact of the matter is, Jesus advocated complete liquidation of one's assets as a condition of discipleship. And after one did so liquidate, one would have no job to tax, either, because one would have to leave one's job to follow him.

Read the famous story about the rich man in Mark 10, paralleled in Matthew 19 and Luke 18, whom Jesus instructed to "sell whatsoever thou hast, and give to the poor." Liberals like to stop right there, with the obligations this story places on the rich.

Few like to reckon, neither liberals nor Christians it must be said, with Luke 14:33: "Whosoever he be of you that forsaketh not all that he hath, he cannot be my disciple."

Or with the calling of The Twelve Disciples, who left all and followed Jesus at his command, wandering around Galilee and Judea for something between one and three years until Jesus met his coup de grace, leaving their families unsupported for the time and becoming deadbeat dads in the process. A fine lot, they.

The truth is Jesus had only these 12 takers, and all of them proved to be something of a disappointment in the end, to say the least. Everyone else he called to discipleship found it a bit of a stretch, and followed at a distance, as it were, especially if a miracle feeding looked to be in the offing. The analogy would be to the Jewish proselytes to whom Paul preached his gospel, which they found rather more attractive than that whole circumcision thing required to become Jews.

Jesus' radicalism makes a certain kind of sense if the end of the world and The Final Judgment is just around the corner, which, of course, would make practical concerns beside the point. "Take no thought for your life, what ye shall eat, or what ye shall drink; nor yet for your body, what ye shall put on." "Some of you standing here will not taste death before you see the kingdom of God come with power."

This is the sort of stuff from which progressive liberalism, inspired by 19th Century liberal Christianity, tried to salvage something, denuded as it was of its supernaturalism and its apocalypticism. Inappropriately inserting their interpretation of a timeless Christian religion into American life, the progressives advocated a moral sensibility based on an unhistorical reading of the history of the religion, pretending all the while that only fundamentalists sought to impose a theocracy on America. In view of the high rates of taxation they came to advocate starting from 1913 (see here), one would almost gladly settle for the fundamentalists' theocracy with its tithe. What rich man in America wouldn't kill for a 10 percent tax rate?

Progressive taxation is a Christian heresy, arbitrarily ratcheting up the cost of discipleship citizenship the richer one gets, but never quite taking all the money, and never really justifying the varying costs in any given year, nor from year to year. Why is the price of entry at a lower rate for a relatively poorer rich man than for a richer rich man? Oh, progressivism tries to pretty this up with sayings of Jesus such as "To whom much is given, much is required" and the like, but at the expense of the full record which shows that Jesus demanded the same from everyone: a complete turning of one's back on one's former existence, no matter how great or how small by human standards of measurement. The Christian conception for this turning was summarized in a single word: "repentance." By contrast the paying of taxes in America is merely with reluctance.

In addition to this heresy, progressivism offers a related one which asserts that a better, improved future is just around the corner for all, if only the rich pay their fair share. This promise of an immanentized eschaton is a bastardized version of Jesus' belief in the coming sudden end of the world and of the in-breaking of the kingdom of God. But the reality is, like the prediction of the end of the world before it, the progressives' expected bright future never arrives, no matter how much money they throw at it.

The message of Jesus was much more stern and demanding than you will find in any church in America, or in the tax-writing committees of the Democratic caucus for that matter. Jesus' message was both much more pessimistic and much more undemocratic than most Americans would care to hear, which is why you don't hear it. It assumes that though many may be called, few end up being chosen. "Narrow is the gate and difficult the way that leads to life, and few there be that find it." (Note to Rev. Rob Bell).

To a significant degree, that pessimism about human nature naturally animated the American founding generation, which ever sought to restrain human evil by recourse to divided government and divided powers within it. They were as familiar with the weaknesses of human nature through their reading of ancient history, literature and philosophy as they were through their reading of the Gospels and St. Paul.

They knew better than most men before them or since that you can't make men good simply by passing laws.

Paul in particular had written that sin was not counted where there was no law, but that when the law came, sin revived, and he died. The analogy from the tax world is similar: If you want to witness tax evasion, multiply the taxes. So funding the new government was going to be at best a tricky business. Which is one reason I think the founders decided to export the sorry business of taxation the way they did, imposing tariffs on foreign trade to generate government revenues, instead of taxing the population directly. They knew it was better to raise the ire of the alien who could be kept at bay than the ire of the countryman who could not.

It's a lesson we need to relearn, and fast.